Managing a business can be a complicated task for company owners of any kind, especially when it comes to the company’s financial health. Thankfully, to help with it, there are tools called profit and loss statements responsible for summarizing the company’s financial performance.

When correctly built, this document becomes a powerful ally capable of quickly showing important information regarding the business's current situation. This data can go from net profit to a balance sheet with the cash flow.

In this article, we will show you how to create the perfect profit and loss statement template for your business. Follow each step to generate a powerful document that can impact numerous aspects of your financial statements.

The profit and loss statement is a financial document that is responsible for showing business owners all relevant financial information. This information can regard aspects like gross profit, operating income, net revenue, and many other data of the company’s financial life.

The profit and loss statement can also show the business owner how capable the company is of generating sales and managing expenses. This kind of financial statement can be used whether you have a large or small business. The most important part is to adapt the document to your needs.

There are various reasons why almost every business owner relies on this document for keeping track of information like net income and other details. The first one is that even though it is a single document, it can gather numerous important information.

With only one document, you can track different aspects and sectors of your company, keeping everything in an organized and easily accessible document.

The profit and loss statement also helps the owner visualize which company’s assets generate more expenses and which bring revenue. With this gross profit margin and record of business expenses, the CEO can precisely tell the company’s financial position among the competition.

You can also customize the P&L statement to better visualize the monthly profit of your business and the company’s ability to generate gross revenue and manage expenses.

Although many people think they are the same thing, some differences make these documents used for different purposes. The P&L statement focuses mainly on the value left for the company after paying all the remaining expenses. It is a document that tracks these values and creates a balance sheet featuring all income taxes, direct expenses, and how much money will be left.

On the other hand, the cash flow statement measures not only the operating expenses or the company’s assets but mainly the sum net flow from all the money in and out of the company. It is a document more indicated for having an overview of the total revenue generated.

Now that you know what a profit and loss statement is and its impact on a business, it is time to see how to create your own template. Each step and category will have a different impact, so make sure to follow all instructions correctly.

This way, you will create a document capable of helping and gathering information, making the management task much more accessible. Here are the main steps and information you should include in your P&L statement:

Revenue

The first information to include when making a profit and loss statement is to write down your revenue regarding sales. More than writing the company's gross profit, here you’ll list all the value gathered from sales, whether they were used to pay for business expenses or not.

The period of time will depend on the type of your P&L document. They can be monthly or even semestral documents.

Once you define that, you just need to write down all the company’s revenues generated in the specified period. This financial data is critical to evaluate business performance, especially when compared to the following categories.

Expenses

When making a document for profit and loss, you should also list your general expenses. Notice that every expense must be recorded, no matter its nature.

They can go from structure to the cost of each sale. You should also do this list using an order rather than at random.

You can sort them by the type of cost, for example. This way, your document looks more organized and helps to find a specific item on the list.

You will also find this part of the document listed as SG&A. This stands for Selling, General, and Administrative, which are the expenses that should be listed.

Cost of Goods Sold

Listing the cost of each good sold and the expenses incurred in the process is also a vital part of your P&L statement. This will help understand your business's ability to turn sales into profit.

This part of the template is also responsible for keeping track of how much of the money is destined for supplies and how much goes to the labor involved. Having a history of this average cost also makes it easier to compare the values with other months to understand the company’s improvement process.

Marketing and Advertising Expenses

When building a profit and loss statement, you mustn’t forget to add the values regarding marketing and advertising. These values directly impact all aspects of the company and its products.

By comparing these numbers, you can tell if the values invested in these campaigns generate return and profit. This is why it is essential to list all the numbers correctly to have a more accurate result.

If you notice that these invested values are not generating the desired results, it is time to change the strategy or lower the cost. Either way, it is a part of the company that needs to be worked on.

Research and Development

Research and development expenses are also considered when producing a profit and loss statement template. Your balance sheet must include all the topics involved in this part of your business to clearly reflect how good your company is at turning these investments into new research.

It is not what will directly determine net income but is a reflection of the company’s financial health and ability to convert the development into income and profit.

Every investment must be considered when calculating profit, and this part is no different. The more business operations you include, the more precise your income statement will be.

Taxes

Some people forget about this category, but you must include taxes and details about your fiscal year when creating your P%L statement. If not included, you might get a number that is entirely different from reality.

Depending on the case, you can even see a number way higher than expected when it comes to your company's total revenue and profit. This happened because you didn’t consider all the values that went to taxes and fiscal obligations.

Ensure you list all of them to avoid unexpected expenses that were not calculated. These taxes must also be listed considering the determined period of time.

Net Income

Net income is one of the most vital pieces of information to include in a company's financial documents. It tells a lot about the company’s health and capability of turning investments into profit.

Its calculation is relatively simple, and with two pieces of information – total revenue and total expenses – you can precisely calculate it.

Net income measures how much money a person or business earns after paying for all operating expenses and taxes. It is one of the most important pieces of information for any kind of business and will dictate the next steps.

When it comes to the creation of profit and loss statements, there are various tools that you can use. From known software to specialized programs, each one has its own features to help with this task.

Among all the options available, we highly recommend using Microsoft Excel for this task. MS Excel not only has one of the best tool sets available, but it is also an industry standard, meaning you won’t need extra software for other business tasks.

If you don’t have a Microsoft Office activation key, you can find Microsoft Office 2021 Professional Plus Key Retail Global at RoyalCDKeys for a considerably lower price. This way, you not only save money but also have access to all tools the program has to offer.

If you don’t want to create your P&L statement template from scratch, don’t worry. Here are some free templates that you can download and use.

Don’t forget to edit them to better fit your needs. All examples can be customized entirely using Microsoft Excel.

Template #1

Profit and loss statement from Wise. A simple template containing all major categories used for calculating expenses and managing financial health.

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Template #2

Simple template for profit and loss statement. A short template containing the essential categories for precisely calculating details like net profit and operating income.

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Template #3

Profit and loss statement template with logo. A template that features space for the logo to keep the visual ID from the company.

Get this template

Measuring financial health is vital for any business, and depending on the quantity of information that must be gathered, it can be a headache for managers. To help on this task, many people responsible for doing this documentation recur to the profit and loss statement.

It is a powerful tool that combines all information that is important for precise measurement. But for it to work as expected, everything must be correctly filled to reflect the actual situation of the organization.

Now that you know everything, it is time to start building your profit and loss statement. Follow each step carefully, and you will get a game-changer tool for your business.